Guest Blog: Retirement Planning | The Frugalista

Guest Blog: Retirement Planning

by frugalista on June 21, 2010

Hello, my Frugalistas! I missed you! I have a guest blogger today, writing about retirement. After all, a lot of projections say that our generation will have to work when they are in their 70s, and I’m trying to fight that every day! Retirement savings are a beautiful thing! Say it loud. Say it proud!

Anyway, here’s a guest post from Marina Shifrin, a personal finance and consumer-interest story writer at mybanktracker.com . Marina says she appreciates her job not only for the income, but for opening her eyes to world of finance.

Here’s Marina’s post!

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When I head to work in the morning, my head is clouded with many questions: Who will I fall in love with on the subway today? Where should I go for happy hour? What just brushed up against my leg?

The last thing on my mind as a 22 year old, brand-new college graduate is retirement planning. As each year passes by with a depressing amount of speed, and after accepting a position with mybanktracker.com I decided it was time to confront retirement planning square in the, uh, face? One problem: I don’t know ANYTHING about retirement planning. So I decided to find a solution the same way I do for 99.9% of my problems: turn to the internet.
Working for mybanktracker.com has many perks, one of which is the wealth of knowledge you can find. I did a quick search and found this article about saving for retirement early. It had great tips and resources for young, business minded, individuals. I particularly liked the link to a retirement plan calculator, but shameless plugs aside I am here to reach out to people like me. People who think about the future but just need help to get the right path. This is why I put together some important information from what I read:
1. 401K
You have probably heard this term before because it is one of the most popular ways to save for retirement. It is a plan that offers tax deductable contributions, tax deferred growth and taxable distributions. As long as you have some type of employment you can establish a 401K.
To protect your money, it is best to establish a rollover 401k, which basically lets you transfer your existing retirement funds into another retirement account without penalty.
Although this article was written last year, I found it very helpful on explaining 401k roll over options: How to Roll Over Your 401(k) When You Leave or Lose Your Job – The 401k Rollover .

2. IRAs
IRAs are similar to 401ks but the difference is that they are individually sponsored as opposed to employee sponsored. That means you are the one in charge. The two types of IRAs are traditional IRA and Roth IRA.
Traditional IRA most resembles are 401k with tax-deferred growth meaning you only pay taxes on the money when you withdraw in retirement. Traditional IRAs also have different options for choosing a type.
Roth IRA doesn’t have the option of tax deductable contributions but offers tax-free growth.
There are different regulations to be eligible for these IRAs. To learn more visit The IRA Advantage.
3. What do I do?
* Start saving! That is the first thing necessary for retirement planning. You should be saving 10-15% of your income as a 20 year old to be able to comfortably retire.
* Start investing! The above options explain how to plan for retirement through investing it would be wise to schedule an appointment with your bank or employer to figure out the best plan for you.
* Start reading! Yeah, thinking about grown up things isn’t fun, but being an adult is expensive. The more you know about it, the more you will be prepared for those expenses.

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{ 4 comments… read them below or add one }

jennifer@befrugal June 23, 2010 at 7:54 am

So many young people don’t think about their retirement plans and it’s so frustrating! Both the hubby and I are 25 years old and the both of us have retirement accounts. He started saving for retirement at 18. Love that about him. He wants to be “comfortable” and have more options when he got older. Money savvy, handsome, house broken, good with kids – thats why I’m married at 25!
I started at 20 while still in college. Yeah, I didn’t put in a ton of money then but little adds up a lot over time. Sure we both have to cut back on things now like dinners out, mani/pedi’s whenever I want (I can do a fab DIY french), $25 mascara etc but it’s so going to be worth it later on in life!

Reply

Frugalista June 23, 2010 at 12:28 pm

Jennifer, you are so far ahead of most and I love it! You and your hubby are super smart for making retirement savings a priority. Spread the gospel! :)

Reply

Richard July 1, 2010 at 11:42 am

I’ve been an attorney working in private bank trust departments for almost 20 years. I’ve seen how people with money acquired it and how they retained it. They are smart enough to know that you can never acquire money by spending it. They would sooner die than go into debt to buy consumer goods. They’ll go into debt but only to purchase property likely to appreciate.

These are the people who, instead of buying iphone after iphone and ipad after ipad, bought the stock of Apple when it was selling for about $7 early in 2003. Today, July 1, 2010, it sells around $260.

People with money don’t care about consumer goods, cars, big-screen TV’s or anything else that the masses “must have”. They know all this stuff is junk and that to buy it simply wastes money better deployed otherwise. In short, people with money got and kept it not by buying things but by buying the stocks of companies that sell things to other people…you for example.

I’ll leave you with this unsettling thought. Suppose you’d had $15,000 in October 1980 and that you’d been of a mind to “invest it”. You might have been lured to purchase jewelry, say a diamond ring, on the utterly untrue but long spread lie that diamonds are rare. Any jewelry store would have been happy to lure you in with a lot of special lighting over plush counters served by shills who are trained in how to try to induce you to put reason on hold and think romantically about how happy you would be if only you had a $15,000 diamond ring. They’d tell you it would be “AN INVESTMENT”. God help you if you fell for the scam. The ring you’d have bought on Friday, October 10th, 1980 for $15,000 would have been worth about $3,000 on Saturday, October 11th if you’d tried to sell it. It might not be worth even that today.

On Friday, October 10th, 1980, stock of Johnson & Johnson traded around $83 per share; you could have bought 180 shares for $15,000. That investment, a REAL INVSTMENT, would today, July 1, 2010, be worth over $500,000. After 48:1 stock splits, you would have over 8,600 shares of Johnson & Johnson paying annual cash dividends of almost $19,000.

You can be young in this country and be without money but this is no country in which to be old and without money. If you have no money you have no power. If you want to end up parking cars for a high school kid who owns a parking lot, keep doing what you’ve been doing. Keep buying “diamond rings”. If you want to have some say about where and how you live and on what terms, leave the consumer good on the shelves and buy the stocks of companies that sell things to other people. Just make sure you’re not the “other person”..

Good luck.

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Vincent Thomas August 22, 2010 at 8:40 pm

You made some excellent points in your last post. Great job! You have managed to explain a really tricky subject very well. I find your post very informative and can’t wait to read more.

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